Twin Cities home prices continued to gain strength in October, according to data released Tuesday that underscored the likelihood that the market’s winter slowdown would be shorter than usual.
Home prices in the metro area during October posted a stronger year-over-year gain, rising 4 percent in the 12 months ending in October, compared with a 3.6 percent gain in the period ending in September, according to the Standard & Poor’s/Case-Shiller 20-city home price index.
Nationwide, home prices rose 5.5 percent in the 12 months ending in October, compared with a 5.4 percent pace in September.
Home values have climbed at a roughly 5 percent pace during much of 2015, as strong hiring has bolstered a real estate market still recovering from a housing bust that triggered a recession eight years ago. Home sales have increased this year as the 5 percent national unemployment rate has strengthened confidence in the economy.
In the Twin Cities, home price gains have run slightly below the national average and been only about half of what’s being reported in coastal and tech-center metro areas, including Portland, Ore., Denver and San Francisco.
Not to worry, economists say, noting that moderate increases are far more sustainable than the double-digit gains being posted elsewhere.
Price gains in the Twin Cities are being driven primarily by tight supply and strong demand, especially in the seven-county metro area, where the job market has been particularly strong. In November, sales outpaced new listings in many parts of the metro, causing the total number of properties for sale at the end of the month to hit near-record lows.
At the current sales pace, there were only enough houses on the market to last a bit more than three months, according to the Minneapolis Area Association of Realtors, which will issue its year-end sales report the second week of January.
Early indications suggest that 2015 will have been one of the best in more than a decade. As of the end of November, sales outpaced the previous year in the 13-county metro by more than 13 percent, with the median price of closings during the month increasing 6.8 percent to $220,000, just shy of a pre-recession high. And with inventory down nearly 20 percent last month, houses sold faster and for nearly the full asking price.
By nearly every measure and despite the threat of slightly higher mortgage rates, the housing market in the Twin Cities in 2016 is poised to be even more robust. Inventory is still falling and there was an unusual late-season surge in house-buying activity. That led October pending sales to rise 18 percent, the first signal that the winter slowdown would be short and that the spring market pickup would begin early.
“We have three buyers for every one house,” said Judy Shield, president-elect of the Minneapolis Area Association of Realtors. “And we still have low winter inventory, especially for those first-time buyers.”
The region’s 3.1 percent unemployment rate — one of the lowest in the nation — has helped bolster demand for housing in the area, especially among entry-level buyers who after years of living with parents and roommates are coming into the market.
Options for the those buyers have become remarkably scarce. Homebuilders have been focused on the move-up buyers, creating a dearth of options for those in the $200,000 to $350,000 range, and because foreclosure rates have fallen back to pre-recession levels, there’s a scant supply of deeply discounted bank-owned listings.
During October, distressed sales across the country represented 10 percent of all transactions, according to a CoreLogic report released Tuesday. That was down two percentage points from a year ago and down from a peak of 32.4 percent in January 2009. At this pace, the rate of distressed sales is expected to return to pre-crisis levels in 2019.
The Fed’s recent decision to increase short-term lending rates doesn’t have a direct impact on mortgage rates, but interest rates are expected to increase slowly and incrementally in the coming year. Freddie Mac’s latest prediction says the average 30-year fixed-rate mortgage will top out at 4.5 percent by the end of next year, up from about 4 percent now.